This is an archived version of the PW Sources newsletter from Saturday, February 24, 2024. Sign up to receive PW Sources directly to your inbox here.

MILITARY BIAS

In light of Israel’s assault on Gaza post-October 7 and growing instability in the region, S&P Global and Moody’s have both downgraded Israel’s credit rating to “negative.” Israeli finance minister and extremist settler Bezalel Smotrich called the revisions “alarmist” and politically motivated. 

In a 1996 paper, economists SHIMSHON BICHLER and JONATHAN NITZAN suggest that the militarization of Israel’s economy from the late 1960s bolstered the profitability of large corporate conglomerates at the expense of small firms:

“To the extent that the government maintained or even increased the military-related profitability of the large firms, it contributed toward undermining the long-term viability of the Israeli economy. Much like the transformation of U.S. big business, as predicted by Kalecki (1967) and later analyzed by Melman (1985), the growing ‘military bias’ since the early 1970s became the dominant structural process of Israel’s ‘big economy.’ This ‘military bias’ shifted the industrial focus toward areas in which Israel did not have and could not have any competitive edge. It raised the domestic and foreign debt and increased Israel’s dependence on the United States. Most significantly, through its effect on the aggregate concentration of profit, it turned the large conglomerates into a decisive political force. Indeed, since the early 1980s, a growing number of mainstream Israeli economists started to express concern about the backward link between the ‘military bias’ of Israeli industry and the course of Israel’s foreign policy: defense spending was no longer seen as a mere political issue, but also as a reflection of economic pressures exerted by the ‘angry elements’ that came to dominate many boardrooms in the ‘big economy.’ The evolution of military spending in Israel was hence part of a double-sided structural transformation. On the one hand, the level of military expenditures was influenced by the progressive ‘military bias’ and increasing concentration of the Israeli economy. On the other hand, these latter developments were themselves partly the outcome of high military spending.”

+  “In Israel, the military budget at the margins is also employed as a political-economic instrument to help manage the economy and to provide a favorable election climate for incumbents.” From Alex Mintz and Michael D. Ward’s 1989 article. Link.

+  Andrew Cockburn traces the growth of the military-industrial complex in the US: “Education came in first by a wide margin, producing 26,700 jobs, followed by health care at 17,200. Defense, generating 11,200 jobs, ranked last.” Link. And James Cypher on military Keynesianism. Link. 

+  “Israel’s move into high-technology military production resulted in slower growth of civilian output than otherwise would have occurred.” By Paul Rivlin. Link. And in the Financial Times, how companies have benefitted from Europe’s recent defense revival. Link.

NEW RESEARCHERS

Disaster Shocks 

REBECCA MARIA MARI is a senior economist at the Bank of England and a recent PhD graduate from the London School of Economics. Her doctoral thesis studies the effects of natural disasters on credit markets and public investment.

From the abstract:

“Three main questions are explored using natural disasters, private credit, and public investment alternatively as shocks and conditioning assumptions in the study of private capital development at local level. What is the role of local private capital endowment on the private sector’s responsiveness to public investment? How do credit market imperfections affect the firm’s response to investment subsidies and the selection of the policy’s optimal target group? What is the impact of a negative shock to the entrepreneur’s home on their small-medium business? This thesis provides three main novel insights. The first one is the crucial role of private capital stock endowment at local and firm-level in determining the effectiveness of different types of public investment in mobilising private investment and labour demand. The second one is the significant impact of natural disasters on local economies not just through physical destruction and factor relocation, but also through indirect effects generated by credit market imperfections and wealth effects. The third one is the effectiveness of public policy in fostering private capital development at local level, which is shown to be related to the degree of complementarity between the public investment and the pre-existing private capital stock.”

+ + +

+  “The increased weight of the global South among countries making up the G20 indicates a changing balance of forces within the group.” New on PW, Bruno De Conti, Pedro Rossi, Arthur Welle, and Clara Saliba on Brazil’s G20 presidency. Read it in English or Portuguese. 

+  “For a maturing technology like wind, year over year trends in costs are no longer driven by an idealized process of ‘learning’  but rather by the gales of creative destruction (Schumpeter) endemic to any capital intensive industry.” A new post from Nolan Lindquist of the Center for Active Stewardship. Link. And see Lindquist’s December PW essay on offshore wind and tech forecasting. Link. 

+  Chloe Tarrabain on the racial and gender dimensions of migrant labor in temporary work agencies. Link.

+   “While Beijing has bested Washington in production and trade dominance, several factors—such as the petrodollar—obstruct China’s attainment of financial dominance in the UAE, thereby preventing bifurcation.” By Toufic Sarieddine. Link.

+  Fritz Brugger on gold trading and formal value chains in Bolivia. Link.

+   “The Moscow-centric approach, with the focus on Mikhail Gorbachev and Boris Yeltsin, has its limits. The Soviet Union fell in the end over the issue of Ukraine.” Serhii Plokhy in conversation with Katherine Younger. Link.

+  Vincent Ialenti’s ethnographic fieldwork studies the corporate ownership “mankala” model backing Finland’s nuclear energy companies. Link.

+   A new study by Janine Heck, Lars Jahnke, and Jen Leker analyzes sustainable energy incentives in the chemical industries of Germany, Austria, and Switzerland. Link.

+   “Progress was also not linear. In the immediate wake of the sit-down strikes, the UAW experienced rapid growth. In less than a year, membership surged from 30,000 to nearly 400,000, driven by the example of the strike, active organizing efforts, grassroots frustration with low wages and lack of shopfloor autonomy, and the path-breaking protections provided by the National Labor Relations Act (1935). ‘This organization during the past year expanded its membership and its functions at a pace unheard of before in the history of the entire labor movement,’ the IEB reported in January 1938. In 1938, however, the U.S. economy nosedived, and many of these new members were laid off, robbing the union of stability. Membership rolls fluctuated wildly, as did the union’s finances, causing regular deficits. Leaders – most of them relatively young men who had been in the plants themselves until recently – learnt on the job. They also vied for influence within the new organization.” By Timothy Minchin. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations: editorial@jainfamilyinstitute.org